He European Central Bank (ECB) this Thursday slowed down the pace of interest rate hikesgiven that the ones that it has undertaken up to now are already reaching the real economy, but it does not stop and it will increase them more in the coming months because inflation is still very high.
The Governing Council of the ECB decided today to raise interest rates by a quarter of a percentage point, to 3.75%.
It’s about the seventh consecutive interest rate hike since the ECB started raising them in July last year and leaves them at the highest level since October 2008after the outbreak of the global financial crisis due to the bankruptcy of Lehman Brothers.
The president of the ECB, Christine Lagarde, told a press conference that the Governing Council made the decision to raise interest rates by a quarter of a point “by a very strong consensus.”
Lagarde explained after the Governing Council meeting that some members considered it appropriate to raise interest rates by 50 basis points and others by 25 basis points and that she did not hear anyone who considered it appropriate not to increase them, so all members were in favor. to increase them.
THE ECB DOES NOT STOP AND WILL RAISE ITS INTEREST RATES MORE
Lagarde reiterated that they still have “some way to go” and that they are not pausing, so the ECB will probably raise interest rates further in the coming months, but she did not say how far they will increase them.
“We will know what the sufficiently restrictive interest rate is when we get there,” said the ECB president the day after the Federal Reserve (Fed) decided to raise its interest rates by 25 basis pointsup to a range between 5 and 5.25%, and will suggest that it will stop there.
The US central bank raised its main interest rate for the tenth time in a row since March 2022, to curb inflation, despite signs of trouble in the economy and the recent banking crisis. The decision was made unanimously, the institution announced in a statement after the two-day meeting of its monetary policy committee (FOMC).
The ECB stressed that it will determine the appropriate level and duration of the tightening of the next interest rate hikes, based on “economic and financial data, underlying inflation dynamics and the intensity of policy transmission monetary”.
UPWARD PRESSURES ON PRICES DUE TO WAGES AND THE WAR IN UKRAINE
Lagarde also considered that the pressures on wages have become stronger.
“Wage pressures have intensified more to the extent that employees, in a context of a robust labor market, recover some of the purchasing power they have lost as a result of high inflation,” Lagarde added.
Besides, “Russia’s war against Ukraine could drive up energy and food costs”.
The ECB is concerned that higher than anticipated increases in wages or profit margins could increase inflation.
“Recently negotiated wage deals have added upside risks to inflation, especially if profit margins remain high,” Lagarde said.
The ECB also decided to end the reinvestments of the asset purchase program, the first public and private debt purchase program in the euro area, from July 2023.
The entity will reduce the portfolio of the asset purchase program, on average, by 15,000 million euros per month until the end of June 2023 and will end the reinvestments as of July 2023.
In this way, interest rates will automatically rise in the financial markets and for this reason the ECB decided to raise its interest rates by only 25 basis points.
This could have been the agreement with the most aggressive members of the ECB, in favor of a rise of 50 basis points, who have accepted a smaller increase in the price of money in exchange for finishing the reinvestments of the bonds as soon as possible.
(With information from EFE)
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